Credit limits slide despite surge of new loan activity

The personal loan market and credit card market are seeing a surge of new activity, but credit limits are falling, in the latest indication of the nation’s financial confidence.

New research by data analytics firm Equifax found that credit limits fell by 10 per cent in November, month-on-month, and by 26 per cent since March 2020.

However, new credit card account openings were up by 16 per cent in November, month-on-month, and by 162 per cent since May 2020.

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After a downturn in the second quarter of 2020, the personal loan market is trending upwards, with prime accounts at 57 per cent of their January 2020 volumes by the end of November 2020; and non-prime accounts at 68 per cent of their January volumes.

“It’s encouraging to see signs of revival in the credit market, but with the UK plunging back into lockdown there’s still a challenging road ahead and lenders and borrowers will remain cautious,” said Paul Heywood, chief data and analytics officer at Equifax UK.

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“The rollout of a nationwide Covid-19 vaccine programme should stimulate some bounce-back in GDP and improve consumer confidence when lockdown restrictions finally ease.

“On the downside, government Covid-19 support schemes will wind down and the UK must adapt to a new post-Brexit business environment.

“In the meantime, cases of financial difficulty will continue to increase, meaning an in-depth understanding of consumers’ financial health is going to be more important than ever to ensure lenders can make informed and appropriate credit decisions.”

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